Indian equities continue to trade lower led by decline in Telecom, Capital Goods

Range-bound trade continued on the Indian bourses in the noon session with the benchmark indices still reeling in red, tracking negative trend seen in Asian markets following dismal performances of European and US markets. Besides, capital outflow by foreign funds and weak global shares also added to concerns. Investors kept their fingers crossed ahead of the landmark tax reform Goods and Services Tax (GST), which is set to launch today midnight. About this landmark tax reform, Asian Development Bank (ADB) in its latest report indicated that implementation of GST will remain a challenge for the government. Further, mixed reaction was observed in real estate stocks after the government on Thursday hiked the GST rate for the construction sector to 18 per cent from 12 per cent, but removed land value from computation of tax liability. Meanwhile, rollover of Nifty futures to July series came in at 73%, which was higher as compared to the average rollover of 69% seen in the last three series. Market-wide rollovers came in at 80%, higher than the average rollovers of 75% seen during the comparable period of last three series.

On the global front, Asian markets were trading lower on Friday, tracking the weak cues from US and European markets overnight. Investors shrugged off data showing that the manufacturing sector in China continued to expand in June at a faster pace. Meanwhile, Japan's Nikkei share average stumbled to two-week lows after investors turned risk-averse as major central banks signalled that the era of cheap money was coming to an end.  Meanwhile, Federal Reserve said on Thursday it would release its semiannual monetary policy report on July 7, five days before Fed Chair Janet Yellen testifies to Congress on July 12, 2017.

Back home, stocks from Healthcare, FMCG and Power counters were supporting the markets’ uptrend, while those from Telecom, Capital Goods and Realty counters were adding to the underlying cautious undertone. In scrip specific development, InterGlobe Aviation, which operates IndiGo airline, declined, extending its Thursday’s fall, after the low-cost carrier has expressed unsolicited interest in buying a stake in national carrier Air India. On the other hand, Unichem Laboratories surged after the company’s formulations manufacturing facility at Goa has received an Establishment Inspection Report (EIR) from the US Food and Drug Administration (USFDA).

The market breadth remained pessimistic, as there were 1087 shares on the gaining side against 1142 shares on the losing side, while 149 shares remained unchanged.

The BSE Sensex is currently trading at 30804.94, down by 52.58 points or 0.17% after trading in a range of 30680.66 and 30829.40. There were 12 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.08%, while Small cap index up by 0.04%.

The top gaining sectoral indices on the BSE were Healthcare up by 1.37%, FMCG up by 0.95%, Power up by 0.41%, Basic Materials up by 0.40% and IT up by 0.34%, while Telecom down by 1.21%, Capital Goods down by 1.13%, Realty down by 1.03%, Auto down by 0.84% and Industrials down by 0.71% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 3.35%, ITC up by 1.83%, Dr. Reddys Lab up by 1.72%, Cipla up by 1.27% and Power Grid up by 1.23%. On the flip side, Larsen & Toubro down by 2.23%, Tata Motors - DVR down by 2.21%, Bharti Airtel down by 1.74%, ICICI Bank down by 1.45% and Hero MotoCorp down by 1.36% were the top losers.

Meanwhile, domestic rating agency, ICRA in its latest report has said that Indian telecom sector’s revenue are likely to fall by another 6 percent to Rs 2.4 lakh crore in the financial year 2017-18, mainly due to heightened competitive intensity and pricing pressures. It also cautioned that the plunge could be sharper for smaller operators like Tata Teleservices, Aircel and Reliance Communications.

In addition, the rating agency has said that the GST rollout will further add to the woes for sector as the higher tax incidence would have to be absorbed by them leading to some additional pressure on cash flows. It expects that industry debt to rise from 4.6 lakh crore in FY17 to Rs 4.8 lakh crore in FY18, despite efforts to lighten the balance sheets. It noted that the pressure on cash flows on the one hand and the need for constant capex on the other, pose a challenge towards debt servicing.

According to the report, for FY18, non-spectrum debt is expected to be at Rs 3.1 lakh crore, while the spectrum debt is seen to be around Rs 1.7 lakh crore. Repayment burden for spectrum debt is likely to be Rs 25,300 crore per annum for the next two years and Rs 31,700 crore post that. The report added that the impact on the telecom industry’s financial health was visible in the second half of FY2017 post-RJio’s launch. It also estimates the situation to remain weak during this fiscal as well, as the pricing pressures show no signs of abatement.

The CNX Nifty is currently trading at 9483.75, down by 20.35 points or 0.21% after trading in a range of 9448.75 and 9491.85. There were 16 stocks advancing against 34 stocks declining on the index.

The top gainers on Nifty were Sun Pharma up by 3.90%, Bank Of Baroda up by 2.41%, Aurobindo Pharma up by 1.86%, ITC up by 1.75% and Cipla up by 1.60%. On the flip side, Larsen & Toubro down by 2.27%, Indiabulls Housing down by 2.00%, Tata Motors - DVR down by 1.94%, Bharti Airtel down by 1.71% and ICICI Bank down by 1.33% were the top losers.

Asian markets were trading in red; Nikkei 225 declined 1.11%, Hang Seng dropped 0.79%, Taiwan Weighted decreased 0.26%, KOSPI Index shed 0.26%, Shanghai Composite 0.11% and FTSE Bursa Malaysia KLCI was down by 0.15%.